There is a growing sense across the infrastructure sector that cost volatility has become the norm rather than the exception.
What is changing is not just the presence of risk, but its complexity, how those risks interact, and how quickly they move through projects.
WT’s latest Australian Construction Market Conditions Report reflects that shift. National infrastructure escalation is forecast at 5.1% in 2026, moderating slightly to 5.0% in 2027 before increasing again to 5.2% in 2028. These are significant figures in their own right. More importantly, they represent underlying or business-as-usual conditions only, deliberately excluding the direct impacts of the Middle East conflict.
It reflects a practical reality for clients delivering major programs.
A market where the baseline is already elevated
Even before factoring in geopolitical disruption, the cost environment remains structurally tight. Workforce constraints persist, project pipelines remain strong across multiple states, and sector capability has not kept pace with demand over the long term.
When geopolitical shocks are overlaid on that environment, their effects are uneven. That is why we separated business-as-usual escalation from direct Middle East impacts in this edition of the report.
For infrastructure projects, those direct impacts are most visible in:
- oil-linked materials such as bitumen, pipes and cabling
- plant-intensive construction activities driven by fuel, including earthmoving and piling
- freight and logistics, where disruption can affect both cost and program
The more consequential effects, however, tend to be indirect. Supply chains become slower and less predictable. Procurement strategies need to adjust mid-process. Programs must manage escalation alongside uncertainty, rather than in sequence.
That is where cost certainty is gained or lost.
The real challenge is decision-making
A common response to volatility is to seek protection through contracts. Fixed-price models, transferred risk positions and higher contingencies can appear to offer more certainty.
In practice, they often achieve the opposite.
In a constrained market, contractors are selective. Projects that present poorly defined or unmanageable risk struggle to attract competitive tension. They either carry a premium or fail to secure the right delivery partners.
This is why we continue to emphasise a simple point. Cost certainty is not achieved at contract award. It is established well before that, through decisions on scope, risk and procurement.
What leading clients are doing differently
Across our infrastructure portfolio, the projects that are holding their position on cost and program tend to share similar characteristics.
They treat cost planning as an ongoing process rather than a milestone deliverable. Cost plans are regularly tested against market intelligence, supply chain conditions and evolving project assumptions.
They are deliberate in their procurement strategies. Contract models are selected to reflect the project’s risk profile, rather than defaulting to familiar structures. Early Contractor Involvement and target cost models are increasingly being used to bring risk into the open earlier.
They invest more effort upfront in de-risking design. Standardisation, greater flexibility in specifications and early identification of high-risk packages all create options when conditions shift.
They also manage escalation explicitly. Mechanisms such as fuel and foreign exchange adjustments are structured to maintain transparency between clients and contractors, rather than relying on contingency to absorb movement.
Finally, they invest in capability and collaboration. In volatile environments, outcomes often hinge on how well information is shared and acted upon across the team.
Eight practical strategies for the current market
For infrastructure clients navigating the next three to five years, several practical actions are proving effective:
- Maintain dynamic cost planning aligned to current market conditions
- Apply design de-risking to reduce exposure to constrained materials and supply chains
- Select procurement models that align with the project’s risk profile
- Use Early Contractor Involvement to identify and quantify risk earlier
- Consider target cost arrangements with shared incentives
- Front-load high-risk packages to reduce uncertainty later in the program
- Implement transparent escalation mechanisms within contracts
- Build collaborative teams with clear accountability
None of these strategies are new. What has changed is that they are no longer optional.
A divergence in project outcomes
One of the defining features of the current market is the widening gap between projects.
Projects that have invested in early planning, clear scope definition and structured risk management continue to attract market interest and maintain cost discipline.
Projects that have not are facing increasing pressure. This may take the form of higher tender returns, reduced competition or more challenging delivery conditions downstream.
This divergence is likely to become more pronounced over the next 24 to 36 months.
Looking ahead
The infrastructure sector has already navigated several periods of disruption in recent years. What distinguishes the current phase is that volatility is now embedded in the baseline, rather than sitting outside it.
There is no single lever that will restore cost certainty. No contract clause, procurement model or contingency allowance can solve it in isolation.
The response needs to be deliberate and coordinated. It requires clients to engage earlier, test assumptions more rigorously and maintain clarity about how risk is identified, allocated and managed across the lifecycle.
Cost certainty, in this environment, is not about removing risk. It is about making better decisions about risk earlier in the process.
Those who do that consistently will not avoid cost pressure altogether, but they will be better positioned to manage it.
This article first appeared in Roads & Infrastructure Magazine.
